Simple wealth creation ideas don’t need to to be melodramatic! It would be great to have lots of cash, but it can also be a burden. Learning some wealth creation ideas can be far more useful than having a tonne of money. Many lottery winners go broke and lose all their friends because they don’t know how to have wealth, keep wealth and grow wealth. Knowing some key financial concepts can help anyone, no matter what their income or outgoings are are.
Wealth Creation Ideas – Â Live Below Your Means
Sounds boring and simple but it’s a key strategy of the wealthy. How can you grow wealth if you overspend continuously? No matter what you earn, if you continually spend more than you have, you’ll always be behind, in debt and feeling negatively about money.
So keeping some aside before you spend anything is a useful strategy to employ if you want to become wealthy, or if you don’t want to lose your wealth. Wealth people ‘pay themselves first’. This means before they pay all their bills, buy food and pay their rent or mortgage, they pay themselves into a saving account. A portion of their income goes straight out to themselves at the point of earnings.
This means they start building some savings up. They also learn to live on less than they have. This is just as important as having savings (if not more) because it builds discipline.
Wealth Creation Ideas – Pay Into A Pension
Paying into a pension isn’t sexy! But it has a two-fold benefit for those who do it. Obviously it means you have some savings if you need it later in life. But it also means you pay less tax because the pension outgoings isn’t taxed. This effectively lowers your income for tax purposes.
This will depend on your individual circumstances of course, but it’s well worth investigating. The other benefit for many pensions is that your employer pays into your ‘pot’ too. In some cases your employer will match your pension amount so you’ll be doubling up your savings each time you pay in.
Wealth Creation Ideas – The Latte Factor
David Back in his book The Automatic Millionaire talk s about what he refers to as ‘the latte factor’. The latte factor refers to your spending on things which you don’t really need. Let’s say each day at work you treat yourself to a latte from the coffee shop. A Latte, for example, in the UK, from Costa Coffee is £2.65. Each day let’s say I buy an Latte from Costa coffee shop.
It’s a treat for myself because I deserve it and work hard etc. ! Over 5 days I will have spent £13.25. In an average working year (let’s day 50 weeks and not count holidays) that’s £662.50! That’s $923.72 if you’re in the US. So maybe it’s not a big deal? But what if I also buy a donut and a piece of cake? Over time, ‘the latte factor’ can eat into your earnings. If you think about what this money could do for you in a savings or investment account, you’ll start to think more about it!
Wealth Creation Ideas – Compounding Interest
If you take to same amount of money that you’d be spending on your daily trip to the coffee shop, and paid it into a savings account, your money will be growing. Savings might not be the the best way to use your money, depending on your interest rates, but the interest will compound over time. This means that your investment grows at an exponential rate over time.
It may not seem like much money at first but lets say you pay in $923.72 every year into a savings account which gives you interest at 4%. In the first year you will have $923.72 + (Interest first year 4% = $36.94) Total =$960.66. 1st year. As you then pay in another $923.72 in the second year ($1884.38) plus your previous savings = interest ($960.66), this makes you balance (interest 2nd year $75.37) = $1959.75 in the second year.
The compounding interest gives you more back every year you maintain your savings. (Depending on your interest rate.)
Wealth Creation Ideas – Getting Rid Of Debt
Of course credit cards, bank loans and over draft facilities all operate in an similar way to this, only not in your favour. The banks make money out of you when you are in debt. So ideally you should pay off your debt, if you have any, before you think about building savings and investments. You can also reduce your interest on credit card debt by changing provider or lowering your interest rate by contacting your debt company and telling them you are suffering financial hardship. This can save you a lot of money depending on how deep in debt you are.
You can also consolidate loans and debt into a single monthly payment. Beware though of companies who offer this as you can easily be led into an agreement which is of much longer duration, even if the payments are lower.
Wealth Creation Ideas – Pay Off Mortgage Early
Paying off the mortgage early isn’t necessarily out of everyone’s reach. It’s just that many people want a certain lifestyle now rather than later. But if you can pay an extra few hundred each month from your mortgage, you can save thousands on the payments you will eventually make over the long term. This might mean not having the holiday or the nice car etc., but it does mean once your mortgage is paid off, you’ll be in a far greater position with your income and outgoings.
Wealth Creation Ideas – Leverage Your Income
Leveraging your income is usually associated with savings and investments. If you have money to invest in stocks, bonds and even property, it can be well worth looking into these ideas. But if you don’t have the buying power to do so, you can leverage your income far better by learning how to not trade your time for money.
Most people trade their time for money. This makes their income finite. There’s a limit to it because there’s only so many hours in a day. Wealthy people know that trading time for money is limited. Using a business model, creates more flexibility and leverage. In most cases this means buying/renting a property, and building a team of staff. Again this can be financially difficult for many people. An internet based business though can give anyone the opportunity to learn new skills and build a business online. An online business has a number of advantages compared to a normal ‘bricks and mortar’ business:
- Low start up costs
- Work from anywhere
- leverage the internet to sell other people’s products
- Scalable and repeatable
- Automated elements make it more time efficient.
Access a digital business system and training platform here.
See also my posts “how do millionaires think” and “how to stop trading time for money“.